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RBI may tweak rules to reduce ARCs’ cash outgo when buying stressed assets

Banking & Finance

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The Reserve Bank of India may tweak the ‘skin in the game’ criteria for Asset Reconstruction Companies (ARCs) in cases where they link-up with an investor to buy stressed assets from lenders on 100 per cent cash basis.

The central bank is examining the possibility of lowering an ARC’s contribution to acquire a stressed asset on all-cash basis from 15 per cent of the acquisition price to 2.5 per cent to 5 per cent.

The reason for this is that there are investors willing to bring in a chunk of money (95-97.5 per cent of the acquisition price) for buying stressed assets.

Given banks’ preference to sell their stressed assets on all-cash basis, the lowering of the ‘skin in the game’ requirement will alleviate ARC’s capital constraints and encourage them to step up purchase of bad loans. This, in turn, will help banks clean up their books. In cases where ARCs acquire stressed assets through a mix of cash and stressed assets, they are required to invest a minimum of 15 per cent of the security receipts. Hari Hara Mishra, Director, UV ARC, observed that in three years from 2018 to 2020, the cash component of purchase consideration paid by ARCs to seller banks and financial institutions went up three times from 28 per cent to 87 per cent.

“There is a long-felt need to reduce minimum contribution by ARCs in 100 per cent cash transactions from existing 15 per cent to 2.5 per cent in line with guidelines as applicable to Alternative Investment Funds (AIFs),” he said.

Reducing stress in sector

Mishra emphasised that this would enable ARCs to arrange more funds and absorb more non-performing assets, thereby reducing stress in the financial sector.

Pallav Mohapatra, MD & CEO, ARCIL, said: “What we want is that when an ARC, along with an investor, acquires a stressed asset on a 100 per cent cash basis from a bank, in such cases the regulator should, I think, reduce the 15 per cent requirement of contribution by ARCs. This can be reduced to 5 per cent.”

Mohapatra underscored that investors are proactive when it comes to seeking regular updates on resolution of stressed assets and recovery. Hence, ARCs will be on their toes despite lower skin in the game.

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Bill for higher deposit cover to be introduced in Monsoon Session

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The government has listed a Bill for the Monsoon Session of Parliament to enable deposit insurance cover of ₹5 lakh. However, it has not included a Bill to ban private cryptocurrencies.

New Bills

It has prepared a list of 17 new Bills to be introduced during the session. This includes a Bill to amend the Deposit Insurance and Credit Guarantee Corporation Act (DIGCS), the Limited Liability Partnership Act, the Electricity Act, and the Coal Bearing Areas (Acquisition and Development), among others. The list also includes a Bill to amend the Insolvency & Bankruptcy Code.

According to the Lok Sabha bulletin, one of 17 new Bills is the ‘Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, 2021.’

The purpose of this Bill is to enable easy and time-bound access for depositors to their hard-earned money and to further instill confidence in them about the safety of their money. “The objective is to enable access by depositors to their savings through deposit insurance in a time-bound manner in case there is suspension of banking business of the insured bank under various provisions of the Banking Regulation Act, 1949,” said the bulletin.

Finance Minister Nirmala Sitharaman had said that last year the government had approved an increase in the Deposit Insurance cover from ₹1 lakh to ₹5 lakh for bank customers.

Access to deposits

She also said that amendments to the DICGC Act aims to streamline the provisions so that if a bank is temporarily unable to fulfil its obligations, the depositors of such a bank can get easy and time-bound access to their deposits to the extent of the deposit insurance cover.

Another important legislature is the Coal Bearing Areas (Acquisition and Development) Amendment Bill, 2021. It has three objectives – make provisions for leasing of land and coal mining rights vested under the CBA Act to any company (including private sector company), which has become a successful bidder in the auction of coal blocks conducted under the MMDR Act or the CMSP Act; land acquired under the Act shall be utilised for coal mining operations and allied or ancillary activities as may be prescribed by Central government; and to make provisions for acquisition of lignite bearing areas under the CBA Act.

Amendment in Limited Liability Partnership Act, 2008 aims to decriminalise 12 compoundable offences, which deal with procedural and technical violations; omission of two provisions is also proposed.

A Bill to amend Electricity Act will entail de-licensing of the distribution business and bring in competition.

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Reserve Bank of India – Press Releases

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April 14, 2015




Dear All




Welcome to the refurbished site of the Reserve Bank of India.





The two most important features of the site are: One, in addition to the default site, the refurbished site also has all the information bifurcated functionwise; two, a much improved search – well, at least we think so but you be the judge.




With this makeover, we also take a small step into social media. We will now use Twitter (albeit one way) to send out alerts on the announcements we make and YouTube to place in public domain our press conferences, interviews of our top management, events, such as, town halls and of course, some films aimed at consumer literacy.




The site can be accessed through most browsers and devices; it also meets accessibility standards.



Please save the url of the refurbished site in your favourites as we will give up the existing site shortly and register or re-register yourselves for receiving RSS feeds for uninterrupted alerts from the Reserve Bank.



Do feel free to give us your feedback by clicking on the feedback button on the right hand corner of the refurbished site.



Thank you for your continued support.




Department of Communication

Reserve Bank of India


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PNB Housing Finance: ‘Stake sale singled out’

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PNB Housing Finance on Monday told the Securities Appellate Tribunal that the ₹4,000-crore stake sale to a clutch of investors, led by private equity firm Carlyle Group, was being singled out by SEBI when similar fund-raising by other entities have gone through without any objections.

Senior advocate Janak Dwarkadas, arguing the case on behalf of PNB Housing, said that SEBI did not have jurisdiction on the issue.

In June, the Securities and Exchange Board of India had asked PNB Housing Finance not to go ahead with the stake sale, until the housing finance company undertakes an independent valuation of its shares. The market regulator said the notice given by PNBHF on May 31 for an Extraordinary General Meeting to approve the stake sale is “ultra-vires of Article of Association (AoA) and shall not be acted upon until the company undertakes the valuation of shares.”

PNB Housing challenged the SEBI order after which SAT had allowed PNB Housing to go through with the EGM but asked it to not disclose the voting results until further orders.

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Top 5 Lenders With The Cheapest Interest Rates On Gold Loans

Personal Finance

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Investment

oi-Vipul Das

|

When it comes to covering financial emergencies or fulfilling any short-term personal finance goal instantly, availing of a gold loan can be a good move. Gold loans are also called secured loans implying that you can apply for a loan from any bank or Non-Banking Financial Companies (NBFC) by pledging your gold articles as collateral or security which should be between 18-24 carats. To approve the loan application, the concerned lender would first check the quality and carat of the pledged gold after which the loan amount will be sanctioned depending on the market price of gold which is calculated according to the prevailing price.

Generally, lenders will give a gold loan for up to 75% of the market price of the pledged gold article. So if you have a short-term personal finance goal and want to take a gold loan with the cheapest rates, then here are the top 5 public sector banks, private sector banks, and NBFCs that are currently offering the lowest or best affordable interest rates on gold loans.

Top 5 Public Sector Banks With The Cheapest Interest Rates On Gold Loans

Top 5 Public Sector Banks With The Cheapest Interest Rates On Gold Loans

Among the commercial banks, Punjab & Sind Bank followed by Bank of India and Canara Bank are currently promising the cheapest rates on gold loans. Here are the top 5 government banks which are currently promising the lowest interest rates on gold loans depending on the loan amount.

Banks Rate of interest in%
Punjab & Sind Bank 7.00 to 7.50
Bank of India 7.30 to 8.95
Canara Bank 7.35
State Bank of India 7.5
Andhra Bank 7.60 onwards
Source: Bank Websites

Top 5 Private Sector Banks With The Cheapest Interest Rates On Gold Loans

Top 5 Private Sector Banks With The Cheapest Interest Rates On Gold Loans

Among the leading private sector banks of India, HDFC Bank followed by Dhanlaxmi Bank are currently offering the best interest rates on gold loans. Here are the top 5 private sector banks of India that are providing the cheapest interest rates on gold loans:

Banks Rate of interest in%
HDFC Bank 8.95 to 17.20
Federal Bank 8.50 onwards
Karur Vysya Bank 8.60 to 9.60
ICICI Bank 9.00 to 19.76
Dhanlaxmi Bank 9.65
Source: Bank Websites

Top 5 NBFCs Offering The Cheapest Interest Rates On Gold Loans

Top 5 NBFCs Offering The Cheapest Interest Rates On Gold Loans

Here are the top 5 non-banking financial companies that are currently promising the cheapest interest rates on gold loans depending on the minimum to the maximum loan amount.

NBFCS Rate of interest in%
IIFL Finance 9.24 to 24
Shriram Transport Finance Company Limited 11.5 onwards
Muthoot Finance 11.99
Bajaj Finance Ltd. 11.99 onwards
Manappuram Finance Ltd. 12.00 onwards
Source: Official Websites

Story first published: Monday, July 12, 2021, 19:42 [IST]



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Reserve Bank of India – Press Releases

Press Releases

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As part of continuing efforts to increase retail participation in government securities, ‘the RBI Retail Direct’ facility was announced in the Statement of Developmental and Regulatory Policies dated February 05, 2021 for improving ease of access by retail investors through online access to the government securities market – both primary and secondary – along with the facility to open their gilt securities account (‘Retail Direct’) with the RBI.

In pursuance of this announcement, the ‘RBI Retail Direct’ scheme, which is a one-stop solution to facilitate investment in Government Securities by individual investors is being issued today. The highlights of the ‘RBI Retail Direct’ scheme are:

i. Retail investors (individuals) will have the facility to open and maintain the ‘Retail Direct Gilt Account’ (RDG Account) with RBI.

ii. RDG Account can be opened through an ‘Online portal’ provided for the purpose of the scheme.

iii. The ‘Online portal’ will also give the registered users the following facilities:

  1. Access to primary issuance of Government securities

  2. Access to NDS-OM.

The date of commencement of the scheme will be announced at a later date.

(Yogesh Dayal)     
Chief General Manager

Press Release: 2021-2022/518

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SFBs rise as RBI clears holding firm merger

Banking & Finance

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Shares of Equitas Small Finance Bank, Equitas Holdings, Ujjivan Small Finance Bank and Ujjivan Financial Services surged sharply on Monday after the Reserve Bank of India (RBI) allowed small finance banks (SFBs) and their holding companies to apply for the amalgamation scheme.

Shares of Equitas Holdings and Ujjivan Financial Services jumped the maximum 20 per cent on Monday while those of the other SFBs also rose but could not sustain the early gains. Shares of Ujjivan SFB closed at ₹30.95, recording a gain of 1.48 per cent over the previous day’s close after rising 10.8 per cent to ₹33.80 intra-day. Similarly, Equitas SFB, which jumped to a high of ₹76.75 in intra-day trade, closed at ₹69.50, up 6.76 per cent.

According to analysts, the RBI’s move allowing Equitas Small Finance Bank and Ujjivan Small Finance Bank to apply for merger of their holding companies with themselves is positive for the holding companies.

Discount to narrow

The amalgamation scheme will unlock significant value for shareholders of the holding companies as the hold company discount narrows. However, the fair value for investors would depend on the swap ratio, which will be the key to monitor, said Motilal Oswal Financial Services.

On Saturday, Equitas Small Finance Bank said it would seek the RBI’s approval for amalgamation with Equitas Holdings, while Ujjivan Small Finance Bank said it would initiate steps for the amalgamation of the holding company, Ujjivan Financial Services, with itself.

According to the RBI norms, small finance banks need to dilute promoter-holding to 40 per cent within five years of commencement of business.

“Equitas Holdings currently holds 82 per cent in Equitas SFB and the initial promoter lock-in of five years expires on September 4, 2021. Ujjivan Financial Services holds 83.3 per cent in Ujjivan SFB and the initial promoter lock-in expires on January 31, 2022,” said JM Financial.

Reverse merger

According to the Scheme of Amalgamation, Equitas Holdings and Ujjivan Financial Services are expected to reverse-merge with Equitas SFB and Ujjivan SFB, respectively, and current shareholders of the holding companies will receive the shares of their respective small finance banks, thus effectively leading to the exit of the promoter of the bank, it added

Currently, Equitas Holdings and Ujjivan Financial Services are trading at a discount of 35 per cent and 43 per cent to their fair value, respectively. For Equitas Holdings, the trading discount since listing has been in the range of 24-54 per cent, while for Ujjivan Financial Services, the holding discount has been around 33-57 per cent, said Motilal Oswal.

JM Financial said it believes this to be a positive development for the small finance banks as well as their holding companies.

At the current market price, zero holding company discount implies an upside of 55 per cent and 77 per cent. respectively, for Equitas Holdings and Ujjivan Financial Services. “We maintain ‘Buy’ rating on Equitas SFB and Ujjivan SFB with a target price of ₹75 and ₹48, respectively,” it said.

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Equitas, Ujjivan SFBs share surges on RBI directive

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Shares of Equitas Small Finance Bank and Ujjivan Small Finance Bank surged on BSE on Monday after the Reserve Bank of India permitted the SFBs and respective holding companies to apply for the scheme of amalgamation.

The scrip of Equitas SFB closed 7.3 per cent higher at ₹69.85 apiece on BSE on Monday. Similarly, Ujjivan SFB shares ended at a gain of 1.48 per cent at ₹30.95 apiece on BSE.

In a stock exchange filing on July 10, Equitas SFB had said it would be initiating steps to finalise the Scheme of Amalgamation, submit it to the Boards of the Bank and EHL for approval and take further action.

“RBI vide its communication dated July 9, 2021 has permitted the bank to apply to RBI, seeking approval for Scheme of Amalgamation. RBI has also conveyed that any ‘no-objection’, if and when given on the Scheme of Amalgamation, would be without prejudice to the powers of RBI to initiate action, if any, for violation of any licensing guidelines or any terms and conditions of license, or any other applicable instruction,” Equitas SFB had said.

Similarly, Ujjivan SFB also had said it would be initiating necessary steps for the amalgamation of Ujjivan Financial Services with the bank according to applicable laws and guidelines.

“RBI vide its letter dated July 9, 2021 has informed the said Association that it has decided to permit small finance banks and respective holding companies to apply for the amalgamation of holding company with small finance banks…three months prior to completing five years from the date of commencement of business of small finance bank,” it had said in a stock exchange filing.

Under RBI guidelines, a promoter of an SFB can exit or cease to be a promoter after the mandatory initial lock-in period of five years, depending on the RBI’s regulatory and supervisory comfort and SEBI Regulations in this regard at that time.

In the case of Equitas SFB, the initial promoter lock-in expires on September 4, 2021.

“…the bank had requested RBI if a Scheme of Amalgamation of the promoter and holding company, Equitas Holdings Limited, with the bank, resulting in exit of the promoter, could be submitted to RBI for approval, prior to the expiry of the said five years, to take effect after the initial promoter lock-in expires,” it said.

According to Ujjivan SFB, the Association of Small Finance Banks of India had in April made a representation to RBI on Dilution of Promoter Shareholding requesting it to grant prior in-principle approval to SFBs for a reverse merger with their respective Holding Companies on completion of initial five years from the date of commencement of business.

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Covid claims for life insurers to rise but sector well prepared: Sumit Rai

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The number of Covid related claims for life insurers in the second wave of the pandemic is likely to be three to four times of the first wave, believes Sumit Rai, Managing Director and CEO, Edelweiss Tokio Life Insurance.

“Claims have increased significantly but typically they come with a lag,” Rai said, adding that most life insurers had anticipated it and are prepared for it.

“I don’t expect the impact to be very adverse and don’t think it will set the industry back very significantly,” he said in an interaction with BusinessLine. The impact of the higher claims will be visible on aspects like term pricing, he added.

Edelweiss Tokio settled 487 Covid related claims amounting to ₹45.82 crore in 2020-21. In the first quarter of this fiscal, it has settled 153 such claims of ₹16.39 crore.

RBI report

According to the Reserve Bank of India’s Financial Stability Report, July 2021, the life insurance industry received 22,205 claims worth ₹1,644.56 crore during 2020-21 where death was due to Covid and related complications, which amounted to 0.3 per cent of total premium income of the year.

“The pandemic did not have a significant impact on death claim settlement rates,” it noted.

However, there is concern among analysts that the spike in claims in the second wave could put pressure on the bottomline of insurers in the quarter ended June 30, 2021.

Kotak Life Insurance had said it expects to incur a loss of up to ₹275 crore in the quarter ended June 30, 2021 due to increased Covid claims.

Rai is, however, optimistic about the prospects of the life insurance sector and expects the industry will grow by 12 per cent to 15 per cent in the next few years. “This pandemic has given a fillip to life insurance. On a long term basis, industry will continue to do well,” he said.

Edelweiss Tokio expects to grow at a higher rate than the industry. “Our goal is to grow better than the industry at between 15 per cent to 20 per cent over the next two to three years,” he said, adding that the focus will be to be multi-channel. The insurer plans to launch a new term product as well as a guaranteed return product this fiscal.

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Amit Jhingran assumes charge as new CGM of SBI, Hyderabad circle

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Amit Jhingran has assumed charge as Chief General Manager, State Bank of India (SBI), Hyderabad Circle, on Monday.

“Jhingran joined SBI as a probationary officer in 1991 in Lucknow Circle and has rich experience in all facets of commercial banking such as retail credit, deposit mobilization, international banking operations and branch management,” SBI said in a release.

Prior to being posted as Chief General Manager, Hyderabad Circle, Jhingran was the Chief Executive Officer, SBI Chicago, USA.

Jhingran took charge from Shri O.P.Mishra, who has been elevated as Deputy Managing Director of the Bank and posted at Corporate Centre, Mumbai as DMD (HR) & Circle Development Officer (CDO).

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